Update: The Upper House of the Indian Parliament approved the amendments to the Payment of Bonus Act of 1965 on December 22, 2015. In an amendment to the original proposal, bonus arrears will be paid retrospectively to April 2014.

On October 21, 2015, the cabinet agreed to increase the wage ceilings for eligibility and calculation of the minimum annual bonus under the Payment of Bonus Act. Last increased in 2007, the thresholds dictate both statutory eligibility for the bonus and the minimum amount payable.

Key Details

The Act, which applies to most establishments with 20 or more employees, requires employers to provide a minimum annual bonus of at least 8.33% of pay to all employees with earnings below the monthly earnings threshold, subject to a maximum of 20% of the threshold. The percentage payable must be the same for all eligible staff. Employees earning in excess of the ceiling are not statutorily entitled to the bonus, but it may be payable at the employer's discretion.

The measure would increase the monthly earnings eligibility ceiling from INR 10,000 to INR 21,000 and increase the minimum annual bonus from INR 3,500 to INR 7,000.Employer Implications

The bill has been taken up by Parliament for approval, with an anticipated effective date retroactive to April 1, 2015. If enacted, the monthly wage cap is likely to restrict the impact for multinational companies to mostly nonprofessional support and production staff. However, it would increase the number of employees eligible for such a bonus, as well as the amount of bonus to be paid out.

Employers are lobbying the government to delay the effective date of the increase, but given the length of time since the ceiling was last increased, prospects for a delay appear dim.

Supplemental retirement plan formulas usually reference base pay alone, as does the mandatory gratuity benefit, so the change typically wouldn't have an effect on contributions or on defined benefit liabilities for these plans.

Proposals for labor reforms announced earlier this year met with a nationwide one-day strike on September 2. The government has indicated that it still intends to pursue the measures, which would among other things, make it easier to both hire and fire employees and expand the social security system.Source: Towers Watson - GAI